November 29, 2017

ILS market hasn’t replaced all trapped capital: Perez at ILS Bermuda’s Beyond Convergence Event

The ILS market has not yet fully replaced the capital lost or trapped as a result of this year’s hurricane events, Horseshoe Group CEO Andre Perez said during an ILS Bermuda event held in London today.

Perez said he anticipated ILS managers would have raised “a bit more” fresh capital than the amount seen so far.

He pointed to assumptions that the market would take about 15 percent of this year’s $100bn industry insured catastrophe losses. “We haven’t seen $15bn being replaced yet,” he said, noting that further capital would be trapped on top of these losses.

However, Perez said there were at least seven to eight new ILS platforms being worked on, including a couple of institutional investors looking at making direct underwriting investments.

Some of the upcoming platforms expected for 2018 and already reported on by this publication include Lutece Re, Tangency Capital and new ILS vehicles from Neon.

Perez said that investors were returning to the market that had not been involved since post-2005. “They’re smelling blood,” he said.

However, the ratings outlook for next year is still uncertain. Significant increases are expected for retro and direct and facultative business, but for standard reinsurance there is a question mark over what type of increases may be achieved.

“What I think investors are looking at is staging their commitments depending on the type of increases,” Perez added.

As well as rate increases, ILS managers should also be looking to strengthen terms and conditions of cover, which have loosened significantly in recent years, said Securis’ head of Lloyd’s/specialty Lawrence Po-Ba.

He pointed to the increase in aggregate covers, the shift away from named perils and/or territories, and the proliferation of composite property covers that throw in specialty risks such as terrorism or aviation.

“We’re going to need to make a stand,” Po-Ba said, adding that Securis would be seeking 20-30 percent rate adjusted increases on renewals after this year’s loss activity.

The panel also discussed the fact that some ILS funds were considering solutions that could free up trapped collateral.

Head of Arcus Syndicate 1856 Rajiv Punja said the experience of trapped capital after the last major loss year of 2011 had led ILS managers to evolve their partnerships with rated fronting carriers, or in Credit Suisse’s case to set up its own reinsurer.

This changing relationship meant that reinsurers would not simply be able to dictate the terms of reloading to fronting partners, he explained.

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